Jonathan Korngold, Managing Director, General Atlantic

Tell us about yourself, what is your history with the firm? What are the firm’s current investments and focus areas in the fintech space?

I was born and raised in the New York area and after spending time living and working in Beijing and London, I have now firmly re-established my roots back in NYC. After beginning my career at Goldman Sachs and attending Harvard Business School, I joined the growth equity firm General Atlantic (GA) in 2001 and have had the privilege of working across a number of our firm’s sectors, including Business Services, Healthcare, and Financial Services.

Today, I lead our firm’s global investment practice in the Financial Services and Financial Technology areas, which together account for about one-third of our global portfolio. For much of our 36-year history, GA has consistently been one of the most active investors in the global fintech space, long before the word “fintech” became fashionable, and we remain more optimistic than ever about the prospects ahead of us in the sector.

Notwithstanding the recent buzz about fintech, I believe that we are still in the earliest stages of technology enablement across the financial services sector, especially as mobile phone penetration increases and as consumers demand more transparency, convenience, and lower fees than what was previously available.

One area that I believe will continue to experience incredibly strong growth for many years to come is in the payments technology arena. There are tremendous opportunities stemming from the continued transition from paper to electronic payments as a vast majority of all global payments today are still paper-based. Complexity in cross-border e-commerce, proliferation of new currencies, and demand for more B2B options will continue to drive innovation. One of our portfolio companies, Adyen, highlights the growth and innovation within the complex international payments segment given the increasing demands for its cross-border, omni-channel payment processing solutions from many of the world’s largest technology-enabled companies, such as Uber, Facebook, Netflix, and Spotify, among others.

In addition, we expect to see continued innovation in how people engage with their personal finances, whether it pertains to lending or wealth management. These industries have historically been defined by their human interactions, and many technologies are emerging to change the way these industries interface with consumers. Whether these functions will be entirely supplanted by technology remains to be seen, but there’s clear evidence that these technology solutions have already had a profound impact on improving access for underserved populations, lowering fees, increasing transparency, and offering more convenience to clients who wish to engage more on their own terms and schedule.

How well are established financial companies adapting to the rapid pace of fintech development? What are the pros and cons of larger financial institutions building, buying or partnering to offer fintech solutions?

There is a lot of hype out there today around the complete disintermediation of banks and other traditional financial institutions. What we see as investors who are in active dialogue with these players is that large financial institutions are not just sitting on their hands while technology companies innovate around them; the calls for “disruption” that will relegate these institutions to being pure utilities are overblown. Not only do these institutions have very deep pockets, significant compliance infrastructures, experience managing across multiple economic cycles, and vast pools of talent to tap into to drive innovation, but these incumbents also have a number of inherent business model advantages over upstart fintech solutions.

For example, in the lending sphere, banks’ access to consumer deposits provides them with a lower-cost and more stable source of funding than what is usually available to many non-bank fintech competitors. With many once-high-flying fintech companies experiencing some recent challenges, one might argue that now is an “Empire Strikes Back” moment for large incumbent banks and traditional financial institutions. Similarly, in just a matter of months, Vanguard, Schwab, and Blackrock have massively eclipsed the AUM of the pure-play “robo-advisory” companies with their own cross-sold robo-solutions.

However, we should not ignore much of the valuable fintech innovation that is taking place outside of large institutions. For example, younger generations are growing comfortable addressing their financial needs with new technologies and have an extreme level of distrust of traditional financial institutions coming out of the financial crisis. While many incumbent financial institutions are aware of the need to evolve and have invested in innovation labs, VC arms, and internal technology development efforts, they face a number of challenges, ranging from the technical to cultural, which should position emerging fintech players well for acquisition or, more likely, strategic partnerships.

Recently there have been assertions that the fintech market is overvalued, do you see a bubble?

The fintech world has received a heightened level of investor interest in recent years in light of the imperative to reform the client experience across all segments of the financial services landscape. For quite some time, investment in financial technology companies came from traditional financial services investors who pursued related technologies. Now, much of the hype around fintech has been driven by a flood of new capital from a much broader universe of VCs and technology investors who, in some instances, may not fully appreciate the “fin” in fintech. Recently, investors have seemed willing to apply the premium valuations typically associated with pure technology companies to fintech businesses that, while innovative, remain exposed to the vagaries of the financial services sector with its underlying business and regulatory risks. It is likely that there eventually will be some form of “shakeout” in which premium valuations are only sustained by the true long-term winners in the fintech space rather than by the “me-too” companies and point solutions that do not offer viable standalone business models.

However, much of the excitement around fintech is very much justified given the many subsectors of the financial industry that stand to benefit from technological innovation. As investors, we at GA remain cautiously optimistic and we have the luxury of looking for opportunities on a global basis rather than in any one specific market. We continue to meet exciting companies every day that are re-thinking how the financial world operates and we will continue to actively pursue global investments in those fintech companies that are seeking to provide clients with better access to low-cost solutions in a fair, transparent, convenient, and regulatory-friendly manner.